Welcome to the third blog in our “Humanizing Human Capital” series. The focus of the series is to define human capital measurements associated with different aspects of the worker journey and provide Human Capital practitioners with necessary facts and approaches to determine the most impactful interventions and investments in people, supported by data-driven evidence, that will prove the economic value contribution to the company’s bottom-line performance.
Talent Acquisition Measurements
This category of measurements focuses on quantifying the talent acquisition processes including recruitment, screening, selection, on-boarding, and ultimately creating a narrative about the financial impact of activities related to talent acquisition. Essentially, this approach measures the effectiveness and efficiency of the talent acquisition strategy and practice. Recruiting can potentially be the most expensive process (after compensation/benefits) for the organization as it has the LOWEST ROI. Think about how many resources are "invested" in hiring talent and that most of that investment is a "sunk cost" because the majority of candidates you screen/interview will never become a productive employee -- contributing to corporate performance -- as a way to recoup the investment in hiring them!
If it costs a conservative $1,000 per candidate to get to 1 job acceptance, the "utility" is very low -- high cost, low benefit. In this example, if you screen/interview 100 people per open position and only get one job acceptance, you might think your cost is $1,000 per hire, but it's really $100,000 as you've had to spend that much on your 100 candidate pool to get to 1 hire! What goes into the cost side of the equation? All your hard and soft-dollar costs including the cost of your ATS system, cost of background screening, cost of the per hour time value of people doing the interviewing (recruiters, managers, other employees), processing time costs, cost of on-boarding, etc. It adds up! Doing better on screening and selection can lower that per candidate cost. This impacts your overall materiality performance by changing HCROI, HCVA, HEVA, etc. metrics.
A variety of measures can be used to baseline current performance and set goals for future performance for talent acquisition. They include:
Current attrition or turnover rate - is this going up or down over time, is it cyclical, is it concentrated in a specific function or level? The cost of turnover can be quantified by using this calculator. Use this to perform sensitivity analysis and estimate the cost savings associated with different levels of turnover, and as a way to rationalize and justify additional investments in retention programs.
Average time to fill a position - is the average time going up or down, are certain jobs harder to fill than others? If you use the above calculator, you can also test the sensitivity of the time to fill a position. Reduction in the time to fill positions, especially in high-productivity/employee organizations, have a significant impact on the cost of attrition.
Average time to accept/reject candidate - is the average time it takes the organization to either make the candidate an offer or reject the candidate. Prior to the "talent war" we're seeing today brought on by the shrinking labor pool and the shift in demographics to Millennials who prefer to work independently, organizations could take their time and the candidates would still be available. However, recruiters are reporting that if candidates aren't responded to within 24-48 hours of any event in the recruiting cycle (application submission, screening, interviews with hiring managers, etc.) then they move on -- even forgetting, in some instances, that they have even applied for the position. When it comes to talent acquisition, speed is of the essence!
Offer acceptance rate - this reflects the experience of the candidate and their perception of how well their expectations can be met by the organization. If you focus on creating diverse candidate slates, you should also focus on having diverse interviewers/representatives of the organization. (See Diverse Candidate Slate below.) It is critical that this is measured as a low offer acceptance rate as it is a signal that something is wrong with the screening process, the interview process, or the candidate's fit for the position. The higher the acceptance rate, the better, as hires offset the cost of talent acquisition because those employees contribute “productivity” to the organization. This offsets the “sunk cost” of recruiting.
First-year attrition - is this going up or down, are certain positions or functions experiencing higher than average first-year attrition? First-year attrition is extremely costly to the organization because you are recruiting for the same position twice (or more) in the same year, making it even harder to recoup the expense associated with recruiting (as you’re spending twice as much per open position.) Above historic average first-year attrition may also signal issues with recruiting, on-boarding, leadership, and overall employee experience.
By quantifying each of these steps in the process, you can determine the overall cost of recruitment or the average cost of each hire, including productivity loss, staff activity costs (screening, selection, interviewing, coordinating activities, etc.), and hard dollar costs associated with talent acquisition. More importantly, you can identify opportunities to make the process more effective and efficient - and quantify the return on investment in talent acquisition programs by optimizing the process and getting talent in the organization that produces value!
Employer brand strength reflects the collective sentiment about the employer’s brand that is shaped by the experience of current employees and candidates. Akin to the company brand, it describes the strength of an employer's reputation as a place to work, and their employee value proposition.
It starts when the worker has their first contact with the organization (either as a consumer or a candidate). A weak employment brand will diminish the entire process and potentially reduce the quantity or the quality of candidates who apply. A strong brand will enhance the desirability of working for your organization. Remember that brand strength is impacted by the candidate's experience in the recruiting process. You only get one chance to make a good first impression, and your candidates will talk about their experience on social media and Glassdoor. Here are some ways to calculate and use Employer Brand Strength:
Employer Brand Strength
How to calculate: Employer brand can be measured through a survey, or if you can’t administer a survey, a good proxy for brand strength is the organization’s Glassdoor rating. Research shows that there is a relationship between Glassdoor ratings and market value¹.
How to use it: Understanding the strength of your brand vis-a-vis candidates will help you understand how quickly you are able to fill your candidate pipeline for open positions. The stronger the brand, the more likely candidates will respond to your job postings. In addition, this metric can be used to amplify the reasons provided by voluntary leavers to understand the experiences of employees reflecting employer brand as their lived experience of the organization, their supervisors, and their peers.
Why does it matter? A poor employer brand not only has an impact on current employees as everyone wants to work for the “cool” company, but it can deter applicants from considering your organization, resulting in a higher turnover of current employees and an anemic pipeline of applicants/candidates. In addition to the current cost of attrition (determined by using the calculator above), research shows that today’s voluntary turnover can increase overall recruiting costs by between 30% and 40% in the subsequent year. Additional costs can include impact on the corporate brand and productivity.
This section provides an example of some practical approaches on how to quantify the financial impact of talent acquisition initiatives.
Cost of Recruitment
How to calculate: Total cost of recruitment (staff costs, cost of management interviewing candidates, investment in ATS systems, headhunter fees, cost of job ads, etc.) ÷ Total new employees
How to use it: Akin to the cost of attrition, the cost of recruitment should be calculated to understand how much the organization is spending per new hire. This can be compared to the per-employee cost of attrition to determine the appropriate level of investment in recruiting or retention.
Why does it matter? When the cost of recruiting is higher than the cost of retention, then more resources should be allocated to retention. These signals are critical in informing business decisions related to human capital budget allocations.
Time to Respond to Candidate:
How to calculate: Hours between contact with candidate
How to use it: Assuming that "speed is of the essence" when sourcing and securing talent, the faster the response rate, the more effective the initiative. You can measure the impact of "time" by correlating elapsed hours to offer and offer acceptance. You might find that the faster you can get an offer to a candidate from his initial application, the higher the offer acceptance rate (see below).
Why does it matter? Moving quickly with candidates signals your interest in them, and the urgency to have them "on-board". It generates a positive brand, demonstrates how efficient the organization is, and sets a standard for the new hire about speed and efficiency of the organization's operations. Organizations we have worked with have adopted a "day of" job offer - meaning they bring in candidates for interviews and determine who will get an offer before they leave at the end of the day. They have reported that their offer acceptance rate went up by 40% with this approach. The higher the offer acceptance rate, the lower the overall per employee recruitment cost as you need to recruit fewer people for open positions!
Offer Acceptance Rate:
How to calculate: Offers accepted ÷ Offers made
How to use it: Like employer brand, this is an indication of the strength of your employer brand as well as the competitiveness of the offer, reflecting the value of all rewards offering, not just base salary, bonus, benefits, and perquisites. Other aspects of value need to be communicated including career opportunities (hire for a career, not for a job²), investment in training and development, speed to mobility/advancement, purpose, etc.
Why does it matter? Employer brand can impact how willing candidates are to accept job offers. When the brand is weak, the offer acceptance rate is low. Given the investment made in the recruiting/screening/selection process, it is critical that the majority of offers made are accepted. In economic conditions with low unemployment rates, this can become an expensive challenge for organizations.
Diverse Candidate Slate:
This is the level of diversity of overall applicants and candidates on average for all open positions. It is equally critical to calculate the diversity of those people in the organization the candidate will meet as they are progressing through the interview process.
How to calculate: Total number of diverse applicants ÷ Total number of applicants; Total number of diverse candidates ÷ Total number of applicants; Diversity ratio of the interview team.
How to use it: Diversity can be defined by the EEOC or by other measures appropriate to your organization. It is important that the candidates are diverse if the organization is going to achieve its DE&I goals.
Why does it matter? When the applicant pool is not diverse, some attention should be given to the employer brand as it relates to DE&I messages. It is impossible to have a diverse workforce if your organization is unable to attract diverse applicants/candidates.
Don't forget to think about the diversity of the company representatives selected to do interviews! You neutralize the impact of a diverse candidate slate if the only people these diverse candidates see are "white guys". Make sure you reflect the diversity you are aiming to achieve!
In the next post, we will focus on Internal Mobility Measurements.
To learn more about ways to bring evidence-based practices to your organization read Humanizing Human Capital: Invest in Your People for Optimal Business Returns.
¹ Bassi, L. J., & McMurrer, D. P. (2006). Employers’ perspectives on human capital development and management. Organization for Economic Co-operation and Development (OECD).
² Charas, S. & Lupushor, S. (2022), Humanizing Human Capital: Invest in Your People for Optimal Business Returns, BenBella Books.